Powers Relating to VAT - Value Added Tax Investigations and Evasion
Introduction All the statutory powers previously exercised by Customs and Excise have been transferred to HMRC. HMRC are granted extensive powers by the Customs and Excise…
VAT Investigations
Background
VAT is primarily a tax on the consumption of goods and services and was introduced on 1st April 1973. It is the VAT-registered supplier of these goods and services who charges VAT on his supplies and collects it on behalf of the government. When introduced, VAT was infamously described as ‘a simple tax’, but this is no longer the case. It has therefore become more of a burden on the VAT-registered person who may find that a raft of penalties are now levied on him if he makes an honest mistake, let alone attempts (unwisely) to defraud the revenue.
HM Revenue and Customs (HMRC) are given the responsibility of administrating the tax and ensuring that the correct amount of tax is collected by VAT-registered persons and paid into the government coffers at the correct time by the Value Added Tax Act 1994, Sch. 11, para. 1(1).
When VAT was first introduced contraventions of the VAT legislation were treated as criminal matters (as they were under the preceding tax, purchase tax). However, as a result of the Keith Committee’s recommendations, many of the minor VAT offences were decriminalised and civil penalties introduced. A civil evasion penalty was also introduced to tackle less serious instances of fraud. After the merger of the Inland Revenue and Customs and Excise in 2005, new Civil Investigation of Fraud (CIF) procedures were introduced to deal with cases of suspected serious fraud. The new procedures replace the former Inland Revenue Hansard procedures and the former Customs and Excise Civil evasion procedures for cases involving serious evasion of tax. Although the use of these procedures was initially restricted to Special Civil Investigations (SCI), HMRC have extended their use to Local Compliance and National Compliance. HMRC are satisfied that the new procedures are compliant with the Human Rights Act 1998, and in particular Article 6, which gives the right to a fair trial. They consider that the case of Khan v C & E Commrs endorsed the principles inherent in the new procedures.